Free market economy
Free market economy is a market that barley
has any government interventions. Prices of goods and services are determined
by the determinants of demand and supply and how the shift from one side to
Benefits for an entrepreneur
of a market economy.
Ø Freedom to innovate;
entrepreneurs will be encouraged to innovate and have new ideas, bring up new
products or modify a product or a concept due to them having the freedom of
setting their own price as they please.
Ø No barriers of entry;
as a new entrepreneur in the market entering a free market can be a huge
benefit. There are no barriers of entry meaning that after an idea has been
thought of and put together a product or a service can enter the market and
sell with no restrictions.
in other markets the prices are determined and regardless the quality of the
product the product still has a set price that it can be sold, however in the
free market entrepreneurs have the freedom to sell products at any price meaning
that the best quality goes for a high price.
Drawbacks of free market
Ø Market failure;
entrepreneurs will not fear coming up with new concepts and financing them,
however everyone else in the market has the ability to do the same thing. This would
cause mass production and they’ll be a possibility of market failure.
Ø Increase in unemployment level;
entrepreneurs will use a large chunk of their capital on producing products in
the form of machinery and many other ways of production. Eventually the
entrepreneurs will only be able to take a limited number of employees.
Ø Economic crisis;
the rich will get even richer due to them being the price makers. This will
mean that the government will have no funds to put in education, transport or
intervention; demand economy
Not all markets are free
markets economy for developing countries the government determines most of the
policies that are set which is known as government intervention. When there’s
government intervention this means that the government is attempting to ensure
that the economy has stability and gradually grows.
Impacts of government
Eliminate failure; with
government intervention this means that prices of goods and services are
determined by the government. Entrepreneurs wouldn’t have the freedom or
confidence to innovate every now and then which will reduce mass production and
the possible chances of market failure.
Reduce unemployment rate;
with little production being done due to already determined prices. Companies
will now have the ability and the funds to expand on labour force. This will
provide the opportunity for the unemployed to have a job that pays well due to
the restriction of overproducing and overpricing products.
infrastructure; the government will now have the ability to tax companies and
accumulate funds to improve the living conditions such as; build better roads,
train teachers for better quality of education, water, communication, transport
and many more. This will most certainly establish economic stability in a
Prevent economic swings;
in the market there are business which are monopolies dominate a single market
constantly selling product as each day passes. And other business which are
going through a period of recession where there’s barely any level of sales
being made, with the government setting rules, regulations and policies the government
can prevent the economic swing.
However not all impacts
caused by government intervention can be beneficial to the business.
Lack of market
discipline; not all decision made by the government are assured of reducing
failure or increasing growth. Governments get influenced by political factors
which is why at times they prevent potential investors coming into the country
which can create job opportunities for the locals. This will prohibit the
economy from growing over time due to the ignorance of the government.
Tax and insurance
20% of 17,
525= 3,505 (annual tax)
insurance; 14,020/ 52= 259.61
12/ 100 x
1791.25= 214.95 (insurance)
A) MIDWIFE: £27,534
20% of 20,059= 4,011.80 (Annual tax)
20059- 4011.80= 16,047.20
16047.20+ 7475= 23,522.20
12% of 1,960.18= 235.22 (Insurance)
1,960.18- 235.22= 1,724.96
30,460- 7475= 22,985
20% of 22,985= 4597 (Annual tax)
12% of 2155.25= 258.63
POLICE OFFICER; £28,964
28,964- 7475= 21,489
20% of 21,489= 4,297.8
21,489- 4,297.8= 17,191.2
17,191.2/ 52= 330.6
24,666.2/ 12= 2,055.5
12% of 2,055.5= 246.66
2,055.5- 246.66= £
Fire fighter; £27,051
20% of 19,576= 3,915.2
19,576- 3,915.2= 15,660.8
15,660.8+ 7475= 23,135.8
12% of 1,927.98= 231.36
1,324.58= 1,324.58, 1,324.58-158.95= £1,165.63
Uses of financial statement
Financial statements are used in business to keep records which contains;
what the business owns, whom the business owes and the overall performance of a
business over a given period of time.
Credit decisions; for any financial institution before lending
out money you’ve got to make sure that the business or individual have the
capability of paying the institution back. The institution will look at the
business performance over time if the business has the capability of generating
and maximizing profit levels in order to pay the money back.
Tax decisions; before the government sets the tax rate the
performance of the business will have to be reviewed. How the money is coming
into the business and how much comes in to the business over time. The
government will tax the business according to how the business performs which
will be in their capability.
decisions; before an investor
decides to invest their money in any business they must first look at the
business performance and if the business has the potential to regenerate the
capital which they’ve invested in.
Employees; employees will be interested in the profit
levels of the business. a business which continues to make good levels of
profit offers greater level of security. The employees or their trade union
might use profit figures to support their claim for higher wages.
Customers; they want to know that a business will
continue to supply them with goods and services which meet their needs and
wants. Business may use some of their profit to invest in new technology which
improves the quality of products and might even lower prices.
trade payables; many goods and services supplied to a
business are on a credit basis. The supplier will want to know the business
that has sufficient cash to pay its debts when they become due.
legal requirements that affect users of financial
The users of financial statements don’t only get affect by competitors
or customers however they get affected by the government. The legal laws rules
and regulations have to be followed by users of financial statement.
Taxes; the government priority is to
improve the economic condition and to ensure that there’s stability with in the
economy. To raise funds for infrastructures such as building roads, schools and
hospitals financial statement users such as business have to be taxed. The tax
rate is determined by the income of the business and the performance in the
market. This policy will affect the business profit levels because money is
being deducted according to how much the business makes per month. After the
government analyses the financial statement of the business and has the
knowledge of what the business owns (assets) will determine the tax rate and
how much the business will be taxed.
Interest rates; government policy can
influence the interest rate which means that they’ll be an increase in the cost
of borrowing (bank loans) which will affect financial statements. An increase
in the interest rates makes it difficult for business to raise any sort of
capital which will affect financial statement such as balance sheet or income
statements as the outcome will be different at the end of the year. An increase
in interest rates will trigger inflation meaning that the price levels of goods
and service will increase in order to have enough money to pay back financial
institutions and the demand for goods and services will decrease which will
affect profit levels.
Government regulations; different
regulations such as minimum wage will affect the users of financial statement.
When the minimum wage increases this will affect the users of a financial
statement due to the expenses will exceed the total sales of the business.
other policies such as government grants where the government takes money from
bigger firms in the form of tax and provides support in the form of a grant to
smaller business to support as they start off their business. before any
business kicks off regulations such as the payment for licences will affect the
users of financial statements as they’ll have to deduct such costs from their
How market competition affects entrepreneurs
Market competition is the fierce competition that
goes on between different firms in the market. Competing to have more customers
than one another and to generate more profits and eventually grow and expand
The following are different types of market
Ø Perfect competition, this is when a number of small
firms in the market compete against one another and there are no barriers of
entry. The firms that compete in a market where there’s perfect competition are
usually similar they generate around the same amount of profit levels.
Ø Monopoly; when there’s one business in the market
which is dominating all the other business in the market. In most cases a
monopoly has more than 50% of the market (market share). This simply means most
of the customers in the market purchase goods and services from one business.
Ø Monopolistic competition; Monopolistic competition
also refers to a market structure, where a large number of small firms compete
against each other. However, unlike in perfect competition, the firms in monopolistic
competition sell similar, but slightly differentiated products.
Ø Oligopoly; An oligopoly
describes a market structure which is dominated by only a small
number firms. This results in a state of limited competition. The firms
can either compete against each other or collaborate
How market competition affects
In a market where there’s
perfect competition entrepreneurs hardly miss out on any information that
spreads around which is helpful to entrepreneurs when they want to plan their strategies
on the most effective way in which the business can maximize profits. In a
market where there’s perfect competition the price is determined by the
business competing in the market. For any new business wanting to enter a new
market the simplest market to entre is the one with perfect competition due to
the fact that there hardly any barriers of entry. However, in a market with
perfect competition it’s difficult for the businesses to develop due to the
fact that any idea that an entrepreneur has can simply be replicated by another
and all the business will be the same.
Entrepreneurs get affected in
different ways depending in the type of market that the business operates in.
monopolies affect entrepreneurs in the sense that they can barely make any
profits if they’re in the same market, monopolies dominate the markets that
they’re in and in most case scenario they own at least 50% of the market share.
Entrepreneurs with small business hardly have a sufficient customers base. In
most cases the best solutions for the entrepreneurs is to sell their business
to the monopolies in order for the business to make sales and survive in the
market. Business tend to take such action in order for them to make profits and
survive in the market as they’re feeding of the monopolies, however the
monopoly controls all operations that will occur even in the small business.
Impacts of government intervention that affect
intervention does not only effect the entrepreneurs however also the consumers.
Government policies such as tax which affect the price levels of goods and
services which will eventually cause inflation. Not only the will the increase
in tax affect demand however so will the interest rates. When the interest
rates increase this means that the cost to borrow or lend money from a bank
will increase. This will discourage the consumers from spending and encourage
them to save, eventually the demand for goods and services will fall.
intervention also interferes with entrepreneur operations, an increase in tax
rates will mean that entrepreneurs will have to increase the prices which will
cause inflation and profit levels will drop. The government controls and sets
the national minimum wage, to a firm if the minimum wages are increased the
expenses for the business will arise at the same time.
government intervention is not always a downfall for an economy at times
government intervention will bring stability to the economy and reduce waste.
For firms government intervention helps to decrease market failure. Without
intervention entrepreneurs usually take the risk and innovate and produce
frequently. With overproduction of goods the business has the risk of facing
market failure and wastage of resources. The unemployment rate also decreases
with governments taking funds from entrepreneurs and business in the form of
tax the money is given as a grant to help and support other citizens as a form
of creating jobs and job opportunity which will improve living conditions and
decrease the unemployment rate.
terms of customers benefiting from government intervention comes when the
government sets the price for goods and services. Businesses aren’t allowed to
go above the set price they can only set the price lower or the same as the set
price. This will encourage the customers to spend and that will help improve
the economic condition of the country.
conclusion, government intervention can be beneficial to both business and
consumers in different circumstances. In developing countries government
intervention is the most advisable to help and improve the economic condition
of the country. If the country is already developed, then it can be a free